Job creation in America: which candidate can deliver?

David Wise is a businessman residing in Annapolis, Maryland. A frequent commentator on public policy, he holds an MALD from The Fletcher School of Law and Diplomacy at Tufts University. Now an independent, he was three times elected a delegate to the Democratic National Convention, beginning in 1972 at age 19.

At the Democratic Convention former president Bill Clinton summarized the Republican Party’s strategy going into this election as saying to the American people: “We left him (President Obama) a total mess. He hasn’t cleaned it up fast enough. So fire him and put us back in.”

With the unemployment rate at a still too high 7.8 per cent, many Americans underemployed and still others having left the job market, that strategy might just work. But what are the facts?

Harvard economists Carmen Reinhart and Kenneth Rogoff are the authors of a recent bestseller, This Time is Different: Eight Centuries of Financial Folly, which is often cited by Republican deficit hawks. Last week Reinhart and Rogoff issued a study on the current economic recovery. While opponents of President Obama’s record point to the rate of economic growth and job creation during the current recovery, Reinhart and Rogoff state that the Great Recession that began in 2008 was a “systemic” financial collapse similar to the Depressions of 1873, 1893, 1907 and 1929 rather than the more ordinary downturns of the postwar years.

In fact, the pace of the current economic recovery – although tepid when compared to run-of-the mill postwar downturns — compares quite favorably with the recoveries from these systemic collapses with which they think the current downturn should be compared. In order to recover the U.S. economy needs to work though the huge overhang of unsold housing and excessive debt burdens built up as a result of the Bush bubble. That will take time — no matter who gets elected president.

The Great Recession that began in 2008 did not occur in a vacuum. Although both the U.S. and Europe had unemployment rates of around ten percent when President Obama announced his stimulus program, the unemployment rate in the United States currently stands at 7.8 per cent — compared with 11.4 per cent in Europe. Although derided by the Republicans the stimulus package put in place by the Obama administration appears to have been highly effective in preventing the Great Recession of 2008 from turning into the Great Depression of 2009. An extensive series of graphs in a piece on the very popular financial website Business Insider in an October posting — entitled, “Here are the charts that should get President Obama re-elected” — make a very compelling graphic case for the effectiveness of the Obama program in preventing economic collapse.

In contrast to the Obama policies the Republicans have trotted out the usual prescriptions of even lower taxes and fewer regulations — even though tax revenue as a percentage of GDP already stands at sixty-year lows, and a case can be made that a too-permissive regulatory environment led to the financial collapse of 2008 in the first place. As the graph below demonstrates, employment increased following the Clinton tax increases but has performed very poorly in the decade of the two Bush tax cuts.

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The resulting deficits that began each year of the Bush administration and crossed over one trillion in the last fiscal year of the Bush presidency have starved public investment. This has resulted in a degradation of America’s competitive infrastructure and relatively poor employment, income and household wealth for the greater portion of the American population – other than those at the very top of the economic pyramid – resulting in a shortfall in aggregate demand. This situation would be exacerbated by the further tax cuts proposed by Mitt Romney and by his proposal to exempt foreign corporate earnings from U.S. income taxes, a sure prescription for moving more U.S. jobs offshore.

In all three debates, Governor Romney has concluded with his “Five Point Plan” to revive the economy. Unfortunately, it is the same Five Point Plan that President George W. Bush outlined at the 2004 Republican National Convention and in his 2006 State of the Union message – the same policies that got us into the current predicament. In 2010 Governor Romney paid just 13.9 per cent in taxes on income of $21.6 million. The Path to Prosperity proposed by his running mate Congressman Paul Ryan would have reduced Romney’s tax bill to just 0.82% (less than one percent).

Meanwhile poor U.S. citizens in the lowest and second-lowest fifth of incomes pay 16 per cent and 21 per cent, respectively, in taxes (Federal, FICA, and Medicare, state and local). U.S. corporate profits are at all-time highs. The wealthy are doing better than they have at any other time in American history.

All that has not delivered a healthy economy. What is needed to move the economy forward is an increase in aggregate demand, triggered by helping moderate-income Americans, whose incomes and wealth are falling, by pulling state and local governments out of their job-destroying freefall and by investment in infrastructure to make the U.S. economy more competitive.

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